Chapter 4_12_BB

Chapter 4_12_BB - CHAPTERS 4 12 Chapter Outline Cost...

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CHAPTERS 4 & 12
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Chapter Outline Cost Accounting Determining cost of objects Classifying Cost according to Traceability Allocating Indirect (overhead) cost Cost pools, drivers and process of allocation Allocating joint products Costing Systems Job order costing system Process costing system
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Cost Accumulation Managers must have reliable cost estimates to: Price products. Evaluate performance. Control cost & operations. Prepare financial statements. What does it cost?
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Cost Accumulation - Cost Object Cost accumulation begins with identifying: 1. Cost objects 2. Cost pools 3. Cost drivers A cost object is any activity, product, or service to which accountants wish to trace costs
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Cost Accumulation - Cost Object Processes Departments Activities Products Managers need to know the cost of a target Total Cost = Direct Cost + Indirect Cost
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Cost Classification - Traceability Direct costs can be identified specifically and exclusively with a given cost object in an economically feasible way. What are direct costs? What are indirect costs? Indirect costs cannot be identified specifically and exclusively with a given cost object in an economically feasible way. Allocate Trace
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Tracing Direct Cost Same cost can be direct or indirect? Tell me the cost object Tell you direct or not!!!!! Traceability as an independent concept and context sensible
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Cost Pools and Allocations Many individual costs that have been aggregated into a single total for the purpose of allocation are referred to as a Cost Pool Utilities Cost Pool Electr icity Water Gas Frequently, companies accumulate many individual costs into a single cost pool. Pooling should be limited to costs with common cost drivers.
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Cost Pools and Allocation Indirect Cost 1 Indirect Cost 3 Indirect Cost 2 Indirect Cost 4 Indirect Cost 5 Product 3 Product 1 Product 2 This is the problem when we don’t use cost pools to allocate costs. 15 allocations
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Indirect Cost 1 Indirect Cost 3 Indirect Cost 2 Indirect Cost 4 Indirect Cost 5 Cost Pool Product 3 Product 1 Product 2 Three allocations Cost pools reduce the number of cost allocation computations. Contains indirect costs related to a common cost driver. Cost Pools and Allocation
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Allocating Indirect Cost Indirect cost are assigned to cost objects using cost allocation . Allocation dividing an indirect cost into parts and distributing the parts among the relevant cost objects using cost drivers
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My House / Your House House 1 House 2 House 3 Direct Materials $140,000 $ 70,000 $90,000 Direct Labor 210,000 130,000 60,000 Overhead* ? ? ? Cost Drivers and Allocation *Total indirect costs such as supervisory salaries and indirect materials amount to $84,000.
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An “Activity” is any task that an organization undertakes to make or deliver a good or service.
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This note was uploaded on 02/22/2012 for the course BUAD 2050 taught by Professor Nicholasw.schroeder during the Spring '09 term at Toledo.

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Chapter 4_12_BB - CHAPTERS 4 12 Chapter Outline Cost...

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